Q1 2024 Clarus Corp Earnings Call

Participants

Matt Berkowitz; IR; Clarus Corp.

Warren Kanders; Executive Chairman; Clarus Corp.

Mike Yates; CFO; Clarus Corp.

Mathew Hayward; Managing Director of Adventure Segment; Clarus Corp.

Neil Fiske; President, Black Diamond Equipment; Clarus Corp.

Laurent Vasilescu; Analyst; BNP Pariba

Matt Koranda; Analyst; ROTH Capital Partners, LLC

Mark Smith; Analyst; Lake Street Capital Markets

Jim Duffy; Analyst; Stifel Nicolaus and Company, Inc.

Presentation

Operator

Good afternoon, everyone, and thank you for participating in today's conference call to discuss ClariPath Corporation's financial results for the first quarter ended March 31st, 2024. Joining us today are Claire's Corporation's Executive Chairman, Warren Kanders; CFO, Mike Yates; Neil Fiske, President, Black Diamond Equipment, new office management, Director of classes, adventure segment, Matthew Hayward, and the company's external Director of Investor Relations, Matt Berkowitz. Following the remarks, we'll open the call for your questions.
Before we go further, I would like to turn the call over to Mr. Berkowitz as he reads the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995. That provides important cautions regarding forward-looking statements. Matt, please go ahead. Thank you.

Matt Berkowitz

Before I begin, I'd like to remind everyone that during today's call, we will be making several forward-looking statements and we make these statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to potential risks and uncertainties that could cause the actual results of operations or financial condition of Claire's corporation to differ materially from those expressed or implied by the forward-looking statements.
More information on potential factors that could affect the Company's operating and financial results is included from time to time in the Company's public reports filed with the SEC. I'd like to remind everyone on this call be available for replay starting at 7 P.M. Eastern time tonight. A webcast replay will also be available via the link provided in today's press release as well as on the Company's website at Claire's corp.com. Now I'd like to turn the call over to Claire's Executive Chairman, Warren Kanders.

Warren Kanders

Good afternoon, and thank you all for joining Clorox's earnings call to review our results for the first quarter. I am pleased to be joined today by not only our Chief Financial Officer, Mike gates, but also Neil Fisk and Matt Hayward, who lead our outdoor and adventure segments at our Investor Day, this past March, we discussed wanting to deliver a comprehensive segment level view so that we are excited to have Neil and Matt deliver on board for earnings calls going forward. Last year, we took crucial steps to realign our overall platform and individual brands. And a key component of this strategy was hiring highly experienced and dedicated executives to guide the outdoor and adventure businesses since their important appointments last year, both have made considerable progress implementing strategic plans, streamline business processes and capitalize on clear long-term growth opportunities today.
I am confident that we have the right team in place, and we continue to be encouraged by the steps Neon matter taking to advance our rebase businesses and turnaround at our Investor Day, we outlined a strategic road map, highlighting anticipated multiyear growth and margin expansion targets for both segments that we believe Claire's can achieve the first quarter of 2024 represented the initial phase of these plans. While Neil and Matt will provide more specific comments, we are encouraged by the incremental progress demonstrated in the first quarter in outdoor we continue to seek to prioritize Simplification and Right-Sizing, which we believe is evidenced by a reduction in total outdoor inventory of 15% versus last year.
At adventure, we saw significant year-over-year sales growth driven by the launch of compelling new products and expansion in our OEM channel. Based on our results to date, we are pleased to reaffirm our full year guidance which Mike will detail later in the presentation. There is still much more work to be done, but we believe we have laid the foundation to drive increased profitability and unlock new growth opportunities in 2024 and beyond. With that, thank you again for being with us today, and I will turn the call over to Mike.

Mike Yates

Thank you, Warren, and good afternoon, everyone. I want to remind people or let people know we're on the call that we've actually provided slides to accompany our presentation. They are available. And if you're on the webcast and they are also available on our website and that's something new. So I wanted to make sure all the participants were aware of the addition that we've made to our call today. On today's call, I'll provide a general Q1 update before turning it over to Matt and Neil to review the segment performance, I'll conclude with a more detailed summary of our Q1 financial results, followed by a Q&A session beginning on slide 4, we entered the year focused on initiating our strategic plan for Claire's this next chapter as a pure-play ESG-friendly outdoor business.
As we have discussed previously, we completed the sale of our precision sports segment in February of 2024, which represented a highly successful outcome for Claire's to date. We have a more streamlined company focused on two consumer segments with broad appeal and attractive long-term tailwinds, outdoor and adventure. In outdoor, our focus is on simplification and solidifying the core although the macro economic backdrop remained challenging during the first quarter, the stabilization we mentioned during our Q4 and year-end 2023 earnings call was confirmed as our North American wholesale market grew year over year. We believe that the work that sales team put in during the second half of 2023 is paying dividends. Now as we sought to listen to our Cathedral accounts and deliver the right product for them on time.
From an operation standpoint, we believe that our inventory reduction and SKU rationalization initiatives are on track in adventure where our core objective is to invest to scale. We saw a continuation of the strong sales growth momentum we established in the back half of 2023. We have made strides, both increasing brand awareness through global marketing programs and strengthening our venture team to ensure we're best positioned to capitalize on strong market tailwinds. Complementing this progress and following the sale of precision sports segment. Claire's has a debt-free balance sheet that we believe provides us with significant optionality to allocate capital for the benefit of shareholders.
After retiring all of Claire's has outstanding debt with the proceeds from the sale, we had over $47 million of cash on hand at the end of the first quarter. Importantly, this provides the flexibility in how we seek to pursue our long-term value creation objectives and growth initiatives. In terms of priorities, we are committed to reinvesting in our existing two segments to drive organic growth. We expect to continue to pay our quarterly dividend and also selectively look at smaller bolt-on M&A opportunities that may enhance our adventure business in the United States and new geographies. Overall, our focus is on cash generation through the continued rightsizing of inventory and business expansion with the intent of accumulating cash on our balance sheet as we execute our strategic growth plans.
Before I turn the call over to Matt. I'll briefly highlight a couple of key figures on Slide 5. Claire's. This first quarter revenue of $69.3 million exceeded our guidance of 64 to $66 million. We also generated adjusted EBITDA of $2 million, which beat our expectations of one to $2 million for the quarter. Overall, we are pleased with our execution in Q1 and with the building blocks in place and we are ready to continue to meet. Claire's is long term financial targets. I'll now turn the call over to Matt, who were managing director of Claire's adventure segment. Matt?

Mathew Hayward

Okay. Thanks, Mike, and good morning, everyone from Australia. I'll begin my remarks on slide 6, and I'm very excited to be part of these calls. Now to address our adventure segment directly tried to tie back to many of the things we touched on during our Investor Day in order to track our progress financially and strategically 2023 marked a reset and stabilization year for the adventure segment. And we are pleased to have kicked off 2024 with significant momentum. The first quarter represented the initial phase of our new three-year strategic plan, and we took important steps, launching compelling new products and continuing to expand beyond the home market in Australia, Q1 sales increased 27% year over year, supported by two primary drivers.
The first In wholesale, we saw strong key account performance across Australia, New Zealand and combined with the onboarding of new key accounts in the U.S. market. This has been supported by strong product portfolio introductions across all of our key categories, inclusive of trace, where we have our category-leading PIONEER six platform, our new Cross Bar system would be our 100 and RX. 200 introductions and new accessory ranges with rooftop tents and storage boxes.
Second, we continued to experience strong demand in our OEM channel, a vital channel for us that we believe will drive volume while enhancing our brand in new markets and vehicle models. Following the first deliveries to new OEM customers in 2023. For a product launch, demand has continued to remain robust, which has helped accelerate sales growth. At the same time, our first quarter margins were affected by less favorable channel mix, particularly given the outperformance of OEM. as it continues to grow. Q1 gross margins in adventure with 38.4% as compared to 41% last year. We also saw onboarding of new key account programs and locations, which do bring in some lower margins in order to be to be good partners in our database.
We continue to take immediate and intermediate steps expected to improve overall profitability and are committed to seeking to drive better SKU productivity, inventory management and organizational efficiency driving performance outside of region. And it is critical as is the ramp up of opportunities across both Max Trax and trade as we expand brand and category reach across 2024. In terms of market conditions, more generally, positive fundamentals continue to be supported by strong auto sales. The facts figures, the standard for vehicle deliveries in Australia showed all-time record first quarter results for the auto sector with 300,000 sales a year over year increase of 13% closer to home in the US new vehicle sales are expected to have risen 5.6% year over year to 3.8 million units volume in the first quarter of 2024, as Cox Automotive diving into select strategic initiatives, I'd like to highlight some of the key investments we are making in the U.S. market.
During the first quarter, we identified several key positions that we believe will enhance our ability to grow with our focus on delivering best in class product globally. We have recently added a new fit technician and national marketing leader that will sync up with our shared services in Australia to deliver best-in-class content tailored specifically for North America that will soon be joined by local IT leadership to not only help drive greater DTC transformation, but also to support enhanced integration with our key partners locally linked to the above I called out as a key imperative for the eventual segment is our strategy to grow our OEM opportunities on a global level outside of ANZ. To this end, we are very excited to be adding a new global head of OEM sales and developments in the U.S. base in our Denver office in Q2.
In terms of brand investment, we have stepped stepped up investment and support across both trade marketing and parallel digital invest within trade support. We've been very excited to launch our first truly global brand and product catalog for Ryanodex delivered in multiple languages for the very first time for partners across Japan, China, Germany, and also adaptations with vehicle specifics for US and Canada. This has been supported with tradeshow investments across Japan, France, and we will continue across markets in 2024 will also be introducing a brand-new platform to support the venture portfolio as a whole across
Overland expos and sema later on in 2024, developments to showcase that ramped up new product development, delivered comprehensive campaigns for our world-famous and industry leading PIONEER six platform and our new focus on showcasing an adventure lifestyle, supported by amazing array of accessories across all brands in our portfolio, including Max Trax and trade in these campaigns, our focus is clearly aimed at the support of our amazing partners globally while driving greater visibility with investment into digital platforms and media.
Lastly, new game-changing product derived and is on the horizon. As we mentioned during our last earning calls, the new PIONEER six platform in Australia, Mark, the first major new product launch in the last 15 months, and we've begun to bring to market a portfolio of accessories that complement it. We also brought to market the first MAX for export innovation for nearly a decade through the introduction of Allied board. We are pleased with the progress launching four new products in the U.S. as well as new accessories globally, including rooftop tents. During the first quarter, we believe that our Advanced segment is well positioned to capitalize on strong industry demand dynamics and a large and growing addressable market across multiple vehicles verticals.
We've made significant investment in professionalizing the team process reengineering and product commercialization to ensure we continue to gain market share moving forward, we are committed to seeking to establish a best-in-class product ecosystem while remaining intensely focused on enhanced product margins as we scale at the end of the day when we engage with our wider community and empower them with the opportunity to make space for adventure in whatever shape and activity that entails with our key partners globally across all key markets we will win together. I'd like to now turn the call over to Neil Fisk, President of Black Diamond. Neil, over to you.

Neil Fiske

Thanks, Matt. Turning to Slide 7. Overall results in the outdoor segment were in line with our expectations for the first quarter of 2024 and we are pleased with the progress we're seeing at our Investor Day in March. I said that 2023 was a reset year for the industry and for Black Diamond and that 2024 would be about simplifying the business to solidify our core improved profitability and laid the foundation for long-term sustainable growth. This quarter, we are starting to see the early results from the hard work we put in over the last year. Importantly, our biggest region of North America returned to growth with the wholesale channel growing 10% year over year. This is one of the first areas of focus in our turnaround plan as we completely rebuilt our sales leadership team.
As Warren indicated earlier, in addition to the sales results we're hearing good feedback from our retail partners that our service levels have improved, that we are sharper in our brand positioning and execution and that we are for the most part outperforming the market in our core categories as we seek to expand our product leadership. I'm also pleased with our progress in strengthening our relationships in the specialty channel, which is a top priority for us. Strategically, we are continuing to rationalize our product lines under the direction of fewer, bigger, better this quarter. For example, we made the decision to exit our distribution of ski bindings, a category which has low margins, high school complexity, low term and high cost to serve, we expect to see further category and SKU reduction over the course of the year as we focus on our core sports and build on positions of strength.
As we simplified the business, we've streamlined the organization and taken out costs. Operating costs are down 8.3% year over year, and we expect that they will continue to fall as a percentage of sale over the course of 2024. We closed five underperforming stores versus the same period last year. We've also made major strides in both the quality and levels of our inventory. Overall inventory is down 15% versus last year, but equally important, we've moved more of this inventory value into the A. styles, which drives 80% of our sales, 59% this year versus 45% last year. And the trend is still improving. Fill rates are up markdown exposures down. We've done a lot of work to bring apparel inventories in line with a 38% reduction versus a year ago. Geographically, the regions are in different stages of recovery.
We're pleased to see the turnaround in our largest region of North America. However, the Europe and independent global distributor markets still face tough market conditions. The year was down 17% in wholesale, which was better than our expectations. The smaller D2C segment in EU. was up 33%. You represents 34% of our revenues in Q1. Igt is a different story altogether. Here we have an added layer of distribution that is still overstocked from the pandemic boom and will likely take all of 2024 to get back in line for the quarter, IGT was down 44% and we expect the year to be down 25% to 30% as inventories rebalance across the network.
Igt represents 10% of our revenue in Q1. Overall, gross margins for outdoor were flat year over year. While we're still clearing through and rightsizing inventory. We believe we are less promotional than the overall market in North America in Europe. We have, however, begun to build a reserve to deal deal with any P fast related inventory that may be more difficult for us to move as a result of new regulations, taking effect at the end of this year by fall of 20 all25 of our apparel and packs will be passed free, but there will likely be some residual PFS inventory to clear in the first half of next year. In summary, we're pleased with our progress and confident in our strategy, knowing there's still much more to do and to demonstrate. I'll now turn the call back over to Mike.

Mike Yates

Thank you. Now I'm on slide 8, and I'll begin with a summary of our financial performance in the first quarter. As a reminder, and as we've noted previously, given the sale of precision sports segment for approximately $175 million, which was completed and closed on February 29th, 2024. During the first quarter, our US GAAP results are comprised of our outdoor and adventure segments and the results are referred to as continuing operations. First quarter sales were $69.3 million compared to $70.3 million in the prior year first quarter, driven largely by the softness in the European wholesale market in IGT market that Neil just discussed that outdoor, partially offset by strong adventure segment sales growth on a constant currency basis, sales were down a half of 1%. Fx was not material in the first quarter.
Moving to consolidated gross margin in the first quarter, gross margin was 35.9% compared to 36.3% in the year ago quarter. As you heard, the decrease was primarily primarily attributable attributable to promotional pricing at the outdoor segment, the increase in T fast related inventory reserves as well as unfavorable channel mix in the in-center segment, I'd like to highlight that adjusted gross margin of 36.9% in the first quarter, improved 60 basis points versus Q1 of last year. Adjusted gross margin as adjusted for the PFS reserve that Neil just mentioned, we reserved $729,000 in the first quarter for this closure.
Selling, general and administrative expenses in the first quarter were $28.2 million compared to 29.4 million in the same year ago quarter. The decrease was attributable to success reducing costs at Outdoor as well as lower intangible amortization and lower stock compensation expenses. Higher investments in marketing initiatives in the adventure segment partially offset the overall decrease. The loss from continuing operations in the first quarter of 2024 was $6.5 million or $0.17 per diluted share compared to a loss from continuing operations of $2 million or $0.05 per diluted share in the year-ago quarter. Loss from continuing operations in the first quarter included $3 million of charges relating to the legal cost and regulatory matter expenses and 700,000 of PFS inventory reserves.
Adjusted loss from continuing operations was $0.1 million or $0 per diluted share. This compares to adjusted income from continuing operations of 400,000 or $0.01 per diluted share in the year-ago quarter. Adjusted EBITDA in the first quarter was $2 million or an adjusted EBITDA margin of 2.9% compared to $1.1 million or an adjusted EBITDA margin of 1.6% in the same year-ago quarter. Our adjusted EBITDA is adjusted for restructuring charges, transaction costs, stock compensation expense. And this quarter we began adjusting for the PFS inventory reserve Additionally, beginning in the first quarter, we adjusted for legal costs associated with the Section 16 b. litigation and the Consumer Product Safety Commission matter known as the CPC. matter these legal costs were $502,000 in the first quarter.
Finally, also included in the separate line on our P&L. Legal costs and regulatory matters was a $2.5 million estimate of our liability for the matter outstanding with the CPSC, which we recorded as a liability in the first quarter, we have adjusted our EBITDA for this estimated liability as well after consideration of these adjustments, the year-over-year improvement in adjusted EBITDA reflects the early results of our efforts to achieve less complexity and focus on the highest margin highest return opportunities, particularly at the outdoor segment. First quarter adjusted EBITDA by segment was $2.9 million at Outdoor and $1.9 million at adventure. Adjusted corporate costs was $2.8 million in the first quarter. We've provided a reconciliation of these adjusted EBITDA numbers by segment and the corporate cost at the back of the presentation and included in today's materials snacks.
Let me shift to liquidity. At March 31st, 2024, cash and cash equivalents were $47.5 million compared to $11.3 million at December 31st, 2023. Total debt at March 31st, 2024 was $100,000 compared to $119.8 million at the end of 2023. Our reduced debt and substantially improved cash position position reflects the closing on the precision sports sale in February and the termination repayment in full of our credit agreement. During the first quarter, we realized a gain on the sale of precision sports of $40.6 million, which was recognized through discontinued operations on our statement of income.
Consolidated cash tax expense for the full year is expected to be $2 million, which will allow us to maintain most of the net cash realized from the sale of precision sports free cash flow, defined as net net cash provided by operating activities, less capital expenditures for the first quarter was an outflow of $18.3 million compared to positive free cash flow of $1.7 million in the prior year quarter. Free cash flow was significantly lower because of a significant reduction in accounts payable during the first two months of the quarter. As a reminder, we have net operating loss carry forwards for U.S. federal income tax purposes of approximately $7.7 billion at December 31st, 2023. The Company expects to utilize all the remaining NOLs in the future years.
Before turning to our guidance, I would like to highlight that we continue to proceed in our lawsuit against half trading LLC. And Mr. Harsh, a pendulum both back discovery and expert discovery have been concluded the court set the following schedule for that half summary judgment, motion and challenge to our expert witnesses motion papers to be filed by May ninth of 2020 for opposition papers by to July ninth, 2024, and replied papers by August ninth of 2024. If this matter goes to trial, we would expect the trial to commence in the fourth quarter of 2024 sometime in 2025.
Moving on to our outlook for 2024. I'm on Slide 9. We have reaffirmed reaffirmed our guidance and continue to expect sales to rate range between $280 million dollars and adjusted EBITDA from continuing operations of approximately 16 to $18 million or an adjusted EBITDA margin of 6.2% at the midpoint of revenue and adjusted EBITDA. We continue to expect capital expenditures to range between four and $5 million and free cash flow to range between 18 and $20 million for the full year 2024, consistent with our historical seasonal pattern, the second quarter decelerates compared to the first quarter. Therefore, second quarter sales are expected to be between 58 and $62 million, and adjusted EBITDA is expected to between $0.5 million. I want to reiterate that our outlook does not include any expense for ongoing litigation specifically relating to the Section 16-b. matters the CPSC matter or further increases in PFAS related inventory reserves.
As we look forward to the remainder of 2024, we are pleased with the incremental progress we are making in both outdoor and adventure segments, and we believe the foundation is in place for profitable growth ahead. While hurdles remain, we are confident in the exceptional team we now have in place and our new positioning as a pure play outdoor company. At this point in the call, operator, we are ready to take questions from the participants.

Question and Answer Session

Operator

(Operator Instructions) Laurent Vasilescu, BNP Paribas.

Laurent Vasilescu

Good afternoon, and thank you very much for taking my question and as well as thank you for a detailed presentation this afternoon as well as the Investor Day a couple of weeks ago. I wanted a very welcome.

Warren Kanders

Lauren, did I hear you fully get our you?

Laurent Vasilescu

Yes, it was good. It was it was very detailed and I appreciate having the team on the call today. I wanted to ask Mike about the guidance for revenues starting off. The midpoint for 2Q would suggest mid-single digit growth, which is great. And but the guidance on the back half would suggest that 2H revenues are down high single digits. By my rough math, when we can just kind of walk through what's happening there is that level of conservatism? Or is there something that we should consider on a separate from that?

Mike Yates

Matthew, it's a little bit of both, right. I mean, last year we did about $59 million in Q2, right? So we're kind of right, but right at the midpoint, we're up 60 in the back half. If we kind of hit that, that would imply the back half would be about $145 million to $150 million of revenue. So call that $75 million a quarter in Q3 and Q4 on last year, I think we did about $83 million in Q3 and $76 million. So slightly down from I think it's a little bit of noise. We rightsized the business we may see a little slower revenue it, but I think I I hope there's some conservatism, right?
We've set up a budget and the plan is back-end loaded and consistent with our business right on the right, you know, our it's our Black Diamond outdoor business is really a third and fourth quarters of winter business fall winter business and same with our adventure business, the big season in the summer in the southern hemisphere, unfortunately or understandably the summer in the Southern Hemisphere is Q3 and Q4. So we do expect to see our business, I'll turn to return to sum up profitability and some growth in the back half. But at this point, that's kind of how it's put together. I kind of think of it as flat. Hopefully, it will be flat on a year-over-year basis. But then that's where the profit will come from in the back half as well.

Laurent Vasilescu

Very helpful. Thank you very much. And then my second question is around the EBITDA margin of 6.2% for the full year. I remember correctly from from 90 days ago, that's largely going to come from gross margin. So I wanted to ask about gross margins. I think they were up 60 bps on an adjusted basis. How much was promotional pricing, a headwind in this quarter? And how do we think about the gross margin evolution, particularly in 2Q on that?

Mike Yates

And then for the balance of the year, gross margin should be a little better in Q2, but not a whole lot. I mean maybe 37% on it should be right at right kind of around where we're at 36, nine, 37, 37 to I mean, it's probably in that range of promotional pricing. Is there still some of that going on for sure. As Neil highlighted in his comments, you know, there's been five the market is still requiring promotional pricing, but we don't think we're participating at the same level the market is, but that doesn't mean we're not promotional pricing. To answer your question specifically, I think there's 30 or 40 bps of pressure from promotional pricing. What is our best estimate on it in our margins.

Laurent Vasilescu

Mike, just super-helpful last question, if I may. On that any commentary comments around inventory levels at your key retail partners on the US side within the outdoor category, I know we had them. It's been challenging for a lot of key retailers, but just curious to know how what's your sense about their inventories? Are we finally at the destock level and potentially at the restock inflection here?

Mike Yates

Well, I think I think the short answer is yes, but there are categories where some of our partners' categories have inventory that they're still overstocked but done. As we mentioned, we saw a 10% increase in our North American wholesale, which is a good sign that they are restocking, especially in the categories that we're in. We're a market leader. And so that's been known as specifically the client depending on, you know, Neil's comments also highlighted, though, that the channel it over in Asia, which was only 10% of revenue, they're still struggling with too much inventory. But fortunately or that's only 10% of our revenue.

Laurent Vasilescu

Okay. Very helpful. Thank you very much.

Mike Yates

Thanks, Laurent.

Operator

Matt Koranda, Roth MKM.

Matt Koranda

Yes, good afternoon. I just wanted to point out the prior. Hey, Mike, I'm going to take off the prior question for sort of the consolidated outlook and just wanted to understand or make sure you put a finer point on for the second half with the the implied growth rate dropping off is that largely because we have tougher comps and adventure? Or is that because we just still sort of lack an inflection point in demand and outdoor, maybe if you could just take it segment by segment and just kind of give us the rationale there is.

Mike Yates

Yes, it is a little bit of both. I think I mentioned there's probably some conservatism. I think internally, we will look to have a little greater than the $150 million that I've kind of highlighted that the back half would be. But Tom, I don't want to commit to that until we see till we get a little further in the year, I'd like to say one quarter doesn't give us a make a year. So let us let us execute over the next day and we get some next 90 days and we'll get some better visibility in the back half. But we are confident in our preseason orders for the fall winter at the outdoor space and an adventure on is continuing to. We did have some real nice growth in the fourth quarter that will be challenging to comp against. So that's a little bit of that as well. But we have fun, which posted 43% growth last quarter, 27% growth this quarter. So we're starting to see the Navy efforts from the work that the teams put in place but done, like I said, we've got to get a little further into the year to get confident about the back half.

Matt Koranda

Okay. Fair enough. And I've got one question for each of the segment leaders. So maybe just outdoor and Neil first, the positive 10% in North America wholesale is definitely an encouraging data point. I'm just wondering if you could maybe unpack for us the categories that are working, where you're seeing some growth, the types of retailers that are participating in that growth? And then where is there still room for improvement in North America?

Neil Fiske

Yes. Thanks, Matt. So the good news is I think the places that we're seeing the growth are in our core categories where we've we've really put the focus on building on our positions of strength where we're number one, two or three. And in those categories things like trekking poles, lighting, a number of our claim categories. And I think that's combination of and marketing programs that we've put in place. Importantly, on reallocating our inventory dollars to get behind and our core categories and our top styles, it's really led to a big improvement in fill rate year over year and cut down a lot and cut down a lot on the friction that we've had in the retail channel and with our retail partners over the last couple of years. So I think that it's good to see the fill rates coming up. It's good to see the friction going down. I think our retail partners are much happier with and our performance in both sell to and our ability to support that sell through for service.
And the other thing I would just say as sort of an addendum to Mike's comments around revenue for the outlook for the for the year, bear in mind to that, some of the revenue outlook for Black Diamond includes the exit of categories such as ski, bindings and other things that we'll be getting out of the course of the year. So bear that in mind, as you think about the factors that affect year-over-year comparables on the on the top line and less stores this year than we had last year, et cetera, that answer your question.

Matt Koranda

Okay. Yes. Yes, that's helpful. I appreciate that. And maybe just turning to adventure and that on I guess you called out operating margins from being a little bit impacted by mix and the OEM business that you're pursuing and winning. Just curious, I guess, one, why pursue that business if it isn't sort of accretive to margins for the segment, just given the margin goals that you have over the next several years. And then I assume that probably means that you see a path to improving those. And maybe just if you could highlight for us what levers you have to kind of improve margins on the OEM side of the business to get them back up to the kind of that aftermarket sort of?

Mathew Hayward

Yes, Cadence, and that's a great question, Tom. I'll start by saying like historically on our OEM business has been very much focused in our backyard of ANZ. And again, when I kind of outlined the opportunities at the investor sessions, it really is about the growth opportunities in the US and outside of Asia. So part of that is establishing a team that's chasing the growth opportunities that exist in the U.S. and going directly with the likes of the Toyotas, the forwards from increasing our pharmacists who tell us any losses taking on the U.S. in 2024. So it's about finding that opportunity.
Now the reason OEM is so important is it does give you access to accelerated aftermarket programs. A good example is we are the global partner from an M&A point of view for the launch of the new Land Cruiser, which is the Turning to the U.S. now and Australia, we have access to this and it's around 4,000 units. The challenges when you don't have that on a global level and the size and scale is a lot bigger in the U.S. And so the investment with a new global head of OE base in U.S. to actually partner directly with the larger markets and one of the driving forces in order, and that's where the growth opportunity lies. And if that's the right sizing of the margins as well, just getting that scale. So it does give us access and first in class kind of our positioning to have new products hit the market at the same time as the new vehicles because the development time lines can range from two to five to seven years, depending on delays and in auto production.
And then it gives us readiness for aftermarket programs and outside of that with margin improvement. And it really is also about bringing online the size and scale outside of ANZ, but also making sure we're seeing improvements in DDC. So in the second half of this year, we'll be launching new platforms across digital and new websites where we haven't really focused and it has not done direct to consumer, and this is getting done in line with supporting key wholesale and that blends into the margin improvements as well. So it's a number of different levers. Product mix across the board on adventure accessories have not been a strong part of it. So looking at lifetime value and really adding on after the sale of a fit, being able to sell our system and accessories, and that's where the blended margin will actually improve as well when we can get more products and more basket size per sale.
So it's a mix of levers. I guess that's one of the good things as we go throughout this year, we're adding a lot more firepower across, I guess, multiple growth opportunities versus relying on a single aftermarket product or a single OEM partner that does that help kind of give you a high level on that.

Matt Koranda

Yes, that's a great overview. I appreciate that, Matt. I'll take the rest of mine here offline for Chagas. Thank you.

Mathew Hayward

My friend, thank you.

Operator

Mark Smith, Lake Street.

Mark Smith

I guess I first wanted to ask on the preferred products on kind of where we are kind of what we got through your reserve board in this quarter and kind of how you feel that that's coming along?

Mike Yates

Good question, Mark. Now we're progressing well with that on work with working with all the opportunities to move inventory that we have that as PFS. And there's actually some exceptions we're looking in to take advantage of for some extreme weather gear that will give us another year to move that inventories well. And then there's also regions that there's still acceptable to sell that. But with all that being said, you know the like I think I had mentioned in the last call, we said there's 3 to $5 million of exposure on Phoenix. I think that numbers probably very similar. Still $3 million to $4 million of exposure but done. That's why we've gone ahead and booked a small north of 25% of that number here in the quarter.

Mark Smith

Perfect. And then other question for me. Just as we think about inventory in general today and primarily within Outdoor, how do you feel about the improvements are positive, but how do we feel about that total inventory number today, are we in a good place? How much is left to kind of move?

Mike Yates

What's of what's a good level where you'd like to be online and you know, I'm very pleased. I'd explain it this way. In 23, we wanted to reduce inventory by in 24. We're definitely reducing inventory kind of with a purpose last year as we reduce inventories, generate cash pay down debt this year. It's very tactical in with direction, and it's strategic for reducing inventory. But we're pivoting in, as Neil described, we're adding back some inventory, what we categorize inventory, D. C's and D's, and we're adding the inventory, you're adding back. It's a category inventory which will allow us to meet demand, which allows us to fill our improved our fill rates on.
It's all eight A. category inventory stuff that we sell, the most of that we have the highest margin on that our customers want on. So no, I think that overall, I would expect inventory to continue to decrease. Now at the end of Q2, it will probably increase a little bit compared to where we are now as we prepare for the fall winter. But by the time we get to the end of the year, I'd expect inventory to be down significantly compared to last year. But more importantly, the mix of our inventory at the end of this year compared to the end of last year will be much healthier.

Operator

Jim Duffy, Stifel.

Jim Duffy

Yes, I wanted to discuss your investment plans as you build your strategies for replatforming outdoor DTC., updating systems and otherwise simplifying the business. So how should we be thinking of SG&A dollar growth on a year-over-year basis as 2024 progresses, but good, good.

Mike Yates

Good question. So on I think Neil mentioned, we are being very cautious on SG&A. In fact, it's our operating costs are down 8 year over year. And so again, it's all about complexity reduction and choosing the best investment for the highest return, whether that's human capital which is hiring more people or investing in CapEx, right, relative to systems that don't we go ahead and install right in capitalized onto our books. So that's how we're kind of that's the filter.
We're looking at all investments again, whether it's operating costs or capital. And Neil and I and Warren are fully aligned on that. And so when we think about SG&A, I wouldn't expect it to increase significantly. It's really about an allocation of those dollars that we have available and putting them to the right in the best opportunities.

Jim Duffy

Okay. And then as we think about gross margin drivers for the year, the BD Asia office is a meaningful driver long term. Could you provide some expectations for timing of the BD Asia sourcing and product development office to influence gross margin?

Mike Yates

Yes. No, great question, Jim or Peter, I'm sorry on that. That's the investment we're making this year and we won't. We won't see the full benefit of that until next year. Okay. I think you've seen our supply chain and lead times and our extended. So we'll get that benefit in 25 queue.

Operator

I'd like to turn it back to Mike here for any closing remarks of.

Mike Yates

Great. Great. Well here, I want to thank everyone very much for participating in our call today and your interest in Claire's in your continued support. We look forward to updating you at investor conferences over the coming months. I'll be on the road at three or four conferences and then again in 90 days when we report the second quarter on. Again, thank you very much and we'll talk soon.

Operator

Concludes today's conference call. Thank you for participating, and you may now disconnect.